Fixed Income - Asset-backed Securities/Duration/Credit Analysis

Securitization is beneficial for banks because it:

• repackages bank loans into simpler structures.

• increases the funds available for banks to lend.

• allows banks to maintain ownership of their securitized assets.

In a securitization, the collateral is initially sold by the:

• issuer.

• depositor.

• underwriter.

A special purpose entity issues asset-backed securities in the following

structure.

At which of the following amounts of default in par value would Bond Class A

experience a loss?

• €20 million

• €25 million

• €26 million

The creation of bond classes with a waterfall structure for sharing losses is

referred to as:

• time tranching.

• credit tranching.

• overcollateralization.

Which of the following characteristics of a residential mortgage loan would best

protect the lender from a strategic default by the borrower?

• Recourse

• A prepayment option

• Interest-only

  payments

Which of the following describes a typical feature of a non-agency

residential mortgage-backed security (RMBS)?

• Senior/subordinated structure

• A pool of conforming mortgages as collateral

• A guarantee by a government-sponsored

  enterprise

Which of the following is most likely an advantage of collateralized mortgage

obligations (CMOs)? CMOs can

• eliminate prepayment risk.

• be created directly from a pool of mortgage loans.

• meet the asset/liability requirements of institutional investors.

Which type of asset-backed security is not affected by prepayment risk?

• Auto loan ABS

• Residential MBS

• Credit card receivable ABS

An investor buys a three-year bond with a 5% coupon rate paid annually. The bond, with a yield-to-maturity of 3%, is purchased at a price of 105.657223 per 100 of par value. Assuming a 5-basis point change in yield-to-maturity, the

bond’s approximate modified duration is closest to:

• 2.78.

• 2.86.

• 5.56.

An investor buys a 6% annual payment bond with three years to maturity. The bond has a yield-to-maturity of 8% and is currently priced at 94.845806 per 100 of par. The bond’s Macaulay duration is closest to:

• 2.62.

• 2.78.

• 2.83.